retrospective legislation

R(on the application of Reilly (No. 2) and another) v Secretary of State for Work and Pensions, [2014] EWHC2182 (Admin) – read judgment

The High Court has issued a declaration of incompatibility following a successful challenge to the Jobseekers (Back to Work Schemes) Act 2013. The regulations under the Act that sanctioned those who did not participate in unpaid “work for your benefit” schemes by depriving them of an allowance violated the rule of law protected by the Convention and this country’s unwritten constitution. However, the dispute did not engage Article 1 of the First Protocol to the ECHR.

Factual background

The claimants, Caitlin Reilly and Jonathan Hewstone (CR and JH) had been unemployed and claimed jobseeker’s allowance. They objected to participation in schemes devised under the Jobseeker’s Allowance (Employment, Skills and Enterprise Scheme) Regulations 2011, in which they were required to work for no pay. As a sanction, the allowance could be withheld from those who refused to participate. CR complied with the requirement under the regulations to take unpaid work at Poundland so did not suffer any sanction. However, attendance on the scheme meant she was unable to continue her voluntary work in a museum, which she hoped would lead to a career in museums (see my previous post on her successful challenge to the scheme). After that ruling, the regulations were amended to overcome the defects identified by the court. But the 2013 regulations, which applied prospectively, had the effect of retrospectively validating the 2011 Regulations, which the Court of Appeal had held to be unlawful. Then the Supreme Court allowed the secretary of state’s appeal against the Court of Appeal decision on the basis that the Act was in force. But the declaration in favour of CR remained valid, following the 2013 Act and that Supreme Court judgment; indeed counsel for the Secretary of State acknowledged the fact that Ms Reilly’s position was “not affected by the 2013 Act.”

JH had not been a party to Reilly No. 1. but his position was clearly affected by that ruling. After initial attendance on a scheme for some months, he refused to participate further, and so his JSA payments were stopped for four specified periods by way of sanction. He in turn had successfully appealed against sanctions imposed by the 2013 scheme. The secretary of state’s appeal against those decisions had been stayed pending the outcome of Reilly.

The claimants submitted that the 2013 Act was incompatible with their rights under Article 6. It was an intervention in the ongoing proceedings in Reilly No. 1 which had the effect of determining the litigation in the government’s favour by retrospectively validating its unlawful acts. It thereby deprived both claimants of a fair determination of their civil rights and obligations, contrary to to the first paragraph of Article 6. JH also relied upon Article 1 Protocol 1, claiming that by withholding his JSA, the defendant deprived him of a “possession” to which he was entitled. He submitted that the deprivation could not be justified as being in the public interest.

The court allowed the applications in respect of Article 6 but not A1P1.

Reasoning behind the judgment

Article 6 and the rule of law

CR and JH had brought proceedings against the state. The 2013 Act was directly targeted at resolving the Reilly litigation. As such, this legislative act by the government had amounted to an interference in ongoing legal proceedings: it had influenced the judicial determination in the secretary of state’s favour in Reilly and was likely to do so in JH’s appeals. Although Parliament was not precluded in civil matters from adopting retrospective provisions, it cannot legislate so as to interfere with the courts’ handling of disputes before them:

the principle of the rule of law and the notion of a fair trial contained in Article 6 preclude any interference by the legislature–other on compelling grounds of the general interest –with the administration of justice designed to influence the judicial determination of a dispute. (Zielinski v France (2001) 31 EHRR 19)

Nor did the ruling in National & Provincial Building Society v United Kingdom (1998) 25 EHRR 127 avail the defendant, even though the Strasbourg Court ruled there that legislation to close an unforeseen tax loophole was compatible with Article 6. The government in that case, the Court concluded, had “compelling public interest motives” to make the applicant societies’ judicial review proceedings and the contingent restitution proceedings unwinnable. By contrast, in the instant case the claimants could not have foreseen Parliament’s retrospective validation of its own unlawful act.

Although these principles emanate from decisions of the Strasbourg Court, in Lang J’s view, they also accurately reflected fundamental principles of the UK’s unwritten constitution, which enshrines the fundamental principle of the rule of law:

It requires, inter alia, that Parliament and the Executive recognise and respect the separation of powers and abide by the principle of legality. Although the Crown in Parliament is the sovereign legislative power, the Courts have the constitutional role of determining and enforcing legality. Thus, Parliament’s undoubted power to legislate to overrule the effect of court judgments generally ought not to take the form of retrospective legislation designed to favour the Executive in ongoing litigation in the courts brought against it by one of its citizens, unless there are compelling reasons to do so. Otherwise it is likely to offend a citizen’s sense of fair play.

The secretary of state submitted that there had been compelling public interest grounds for the retrospective legislation. Lang J acknowledged that it was understandable that a government faced with the prospect of substantial repayments would consider it in the public interest not to pay them. But it was apparent from Strasbourg’s judgments, such as Scordino and Zielinkski, that financial loss alone was not a sufficiently “compelling reason in the public interest”. If it were, then retrospective legislation of this kind would be commonplace.” (para 107).

Not only was there insufficient public interest to justify the retrospective legislation but the government had been aware of the concerns about the legality of the statute because it had been brought to the attention of its proposer by the report of the Constitution Committee. One of its members, Lord Pannick, told the House:

this Bill contravenes two fundamental constitutional principles. First, it is being fast-tracked through Parliament when there is no justification whatever for doing so. Secondly, the Bill breaches the fundamental constitutional principle that penalties should not be imposed on persons by reason of conduct that was lawful at the time of their action. Of course, Parliament may do whatever it likes – Parliament is sovereign – but the Bill is, I regret to say, an abuse of power that brings no credit whatever on this Government.

Whilst judicial review is more properly concerned with the substance of the legislation, not the reasons for it, Lang J wryly observes that the absence of any consultation with representative organisations, and the lack of scrutiny by the relevant parliamentary committees, “may have contributed to some misconceptions about the legal justification for the retrospective legislation.” (para 96). The government’s statement to Parliament explaining why the 2013 Act would be Convention compatible had not explained that Parliament was being asked to justify a departure from the legal norm, which would only be lawful if made for compelling public interest reasons. Further, the statement had erred in concluding that the case was comparable to National & Provincial as the legislation would be closing a loophole. It was not accurate to characterise the flaws in the 2011 Regulations as a loophole. The 2013 Regulations had remedied the technical defect identified by the court in the original Reilly litigation, but that did not mean there were compelling grounds to justify the interference with CR and JH’s rights under Article 6 to a judicial determination of their claims. The 2013 Act therefore violated Article 6(1) in relation to those who had pursued claims in the courts or tribunals.

Article 1 Protocol 1: had the Second Claimant been “deprived” of his “possessions”?

JH failed in his claim that he had suffered a violation of the right to respect for peaceful enjoyment of possessions. This was not because he had succeeded under Article 6 – the rights protected by the respective provisions were different (AXA General Insurance Ltd, Petitioners [2011] UKSC 46). Lang J accepted the claimants’ argument that a wholly state-funded non-contributory benefit could constitute a possession under A1P1, but JH’s right to the allowance depended on whether he met the conditions for receipt of the benefit. He had not met the conditions for future payment. He had not been deprived of an existing possession because there was no revocation of benefits previously received. This was made clear in Moskal v Poland, where the Strasbourg Court observed that

Art. 1 of Protocol No. 1 does not create a right to acquire property. This provision places no restriction on the contracting state’s freedom to decide whether or not to have in place any form of social security scheme, or to choose the type or amount of benefits to provide under any such scheme. ((2010) 50 EHRR 22)

It was clear from this statement of principle that, in order to establish a property right, the applicant must fulfill the requirements for receipt of the benefit at the relevant time. Nor did he have a reasonable expectation that the allowance would be paid if his legal claim was successful. His claim was not an “asset” within A1P1. His only reasonable expectation had been that his appeal would be determined in accordance with the law as it stood from time to time.

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Those of a certain age will remember when top tax rates in the UK were 98%. This was the marginal rate of tax in this successful claim that such taxation offended Article 1 of the 1st Protocol (A1P1) – the peaceful enjoyment of possessions. But the very wealthy seeking to safeguard their bankers bonuses may not obtain too much comfort from the Strasbourg ruling, as the facts were fairly extraordinary.

The applicant had been a Hungarian civil servant for 30 years until her dismissal (with many others) in July 2011. Long-standing rules gave her 8 months severance pay. The 98% tax rate was introduced in 2010; it was then successfully challenged in the Hungarian Constitutional Court. On the day of the Court’s adverse judgment, the tax was re-enacted, but this time the 98% rate was applied to pay exceeding 3.5m forints – c. £10,000 – and, further, only where the earnings came out of specified categories of public sector employees.

A fresh challenge in the Constitutional Court annulled the retrospective effect of this law, but could not as a matter of jurisdiction review the substantive aspects of the tax. So the applicant went to Strasbourg to challenge the tax when deducted from her pay.

When can an agricultural landlord turf out his tenant farmer? The answer to this question has ebbed and flowed since the Second World War, but one element of the latest attempt by the Scottish Parliament to redress the balance in favour of tenants has just been declared incompatible with Article 1 of the 1st Protocol (A1P1) as offending landlords’ rights to property. The Supreme Court has so ruled, upholding the Second Division of the Court of Session’s ruling in March 2012.

The reasoning is not just of interest to agricultural lawyers either side of the border. But a brief summary of the laws is necessary in order to identify the invidiousness of the new law as identified by the Court – and hence its applicability to other circumstances.

As will be seen from my postscript, the decision of the court below to the same effect appears to have had tragic consequences.

The Queen on the application of Totel Ltd v The First-Tier Tribunal (Tax Chamber) and The Commissioners for Her Majesty’s Revenue and Customs [2012] EWCA Civ 1401 – read judgment

Tax litigation is not the most obvious hunting ground for human rights points but if claimants feel sufficiently pinched by what they perceive as unfair rules, there is nothing to stop them appealing to the courts’ scrutiny of the lawfulness of those rules.

Human rights were not raised per se in this appeal but constitutional principles which arguably play the same role made all the difference to the outcome.

Parliament does not lightly take the exceptional course of delegating to the executive the power to amend primary legislation. When it does so the enabling power should be scrutinised, should not receive anything but a narrow and strict construction and any doubts about its scope should be resolved by a restrictive approach.[35] Continue reading →

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